238 - Behavioral Finance

Faculty: Subrahmanyam, A.

This course will introduce and explain the evidence of anomalous return behavior found in US equities markets. We will also present some paradigms of stock price movements that are rooted in studies from psychology, and seek to explain trading activity in equity markets. We will begin by exploring some of the evidence that contradicts the standard risk-return paradigm. We will then introduce some of the psychological biases that researchers suspect are inherent to investors. We will then employ some of the results from the psychology literature to explain the irrationalities encountered in the finance literature. Thereafter, we will present the latest evidence on why individual investors trade and how individual and institutional investors form their portfolios.